A Blockbuster Deal, But Is It Really What It Seems?

Mark Lennihan / Associated Press

In this Nov. 3, 2011 file photo, Sanj Patel, President and CEO of Synageva BioPharma Corp., attends the opening bell ceremony at Nasdaq in New York. Alexion Pharmaceuticals on Wednesday announced it is spending $8.4 billion to buy fellow rare disease treatment maker Synageva BioPharma, a company with no products on the market.

In this Nov. 3, 2011 file photo, Sanj Patel, President and CEO of Synageva BioPharma Corp., attends the opening bell ceremony at Nasdaq in New York. Alexion Pharmaceuticals on Wednesday announced it is spending $8.4 billion to buy fellow rare disease treatment maker Synageva BioPharma, a company with no products on the market.

The Alexion-Synageva deal: Why assets should still count when we're talking about real value in the economy

Everyone who watches corporate mergers was talking Wednesday about the huge deal by Alexion to buy fellow drugmaker Synageva, an $8.5 billion blockbuster that would be one of the largest takeovers ever by a Connecticut company.

The cash-and-stock deal announced by Cheshire-based Alexion is nearly twice as big as the 2010 deal in which The Stanley Works paid $4.5 billion in stock to inhale rival Black & Decker.

Is this really twice as big a deal to the economy? Of course not.

Sure, money is money, and if buyers — in this case, the shareholders of Alexion — are saying Synageva today is worth 1.9 times as much as Black & Decker in 2009, fine. A business acquisition is always about what the buyer thinks a company will earn in the future.

But if the economy is about real people making real things with real equipment, occupying real property, it's not even close. Synageva BioPharma Corp. had a grand total of 282 employees on Jan. 1, with total sales of $6.5 million.

Black & Decker, at the time of the Stanley announcement on Nov. 3, 2009, had 22,000 employees generating 6.1 billion in annual sales. It's not fair to talk about profits because B&D was a 99-year-old company and Synageva has yet to bring to market its main product, a drug to treat a rare disease.

A generation ago, maybe longer, we talked about assets when we measured companies. The oil companies and carmakers, led by General Motors, topped the Fortune 500 lists because they had the biggest piles of stuff — which mattered the most to the economy, or so we thought.

Then the world changed, and the measure became sales, with Wal-Mart coming out on top. Profits always mattered, especially our expectations of future profits, and that makes Apple far and away the biggest company.

I'm not saying speculative measures don't matter, although the $24 billion market value of Twitter, which has weak sales and loses hundreds of millions of dollars a year, is just plain dumb. It's just that assets should still count when we're talking not about financial value but about real value in the economy.

Consider that Alexion and Synageva had a combined market value of $38 billion at the end of trading Wednesday. Their assets total $4.7 billion, including property, plants and equipment and inventory worth $600 million. They had 2,600 employees and in 2014, a combined $2.2 billion in 2014 sales with operating profits of $690 million.

Now look at New Britain-based Stanley Black & Decker five years after the merger. It had a market value of $15.6 billion Wednesday, less than half as large as the two drugmakers. But the maker of tools and security systems had assets of $15.8 billion, including property, plants and equipment and inventory worth $3 billion.

Stanley employs more than 50,000 people and made $1.5 billion in operating profits last year on sales of $11.3 billion.

Sure, in 2009 the Black & Decker price was depressed because of the recession and Wednesday's deal was at a heady 124 percent premium — but that's all part of the point about slippery value.

The number to watch, of course, is that operating profit figure for the drugmakers, which figures to rise well into the billions based on the fact that drugs to treat rare diseases can sell for silly money, like the $500,000 a year Alexion lists as the price for its drug, Soliris.

That price, leading to that stock value, makes sense because life, after all, is the thing we're really valuing in all this. Or the valuation makes no sense because it's a bubble that's going to crash. You buy your tickets, you take your chances.

The point is, decades after we compared corporations based mainly on asset value, solid stuff still has value to the economy. It's quaint in some ways, in an age when ideas are more valuable than machines.

But employees, sales, buildings, inventory and equipment still matter until those bright ideas actually lead to a product on the market that makes billions in profits.